satisficing theorya THEORY OF THE FIRM that postulates that firms typically not only seek to secure ‘satisfactory’ profits rather than maximum profits, as depicted in the traditional theory of the firm, but that other objectives, such as increasing sales, market share or the size of the firm, may be accorded equal or greater prominence than profits. Organizational theorists suggest that satisficing behaviour is particularly likely to occur in large, hierarchical organizations where consensus decision-making, reconciling the diverse aims of the various subgroups of the organization, tends to be the norm, as opposed to objectives being set by an individual ENTREPRENEUR.
The problem with this approach to firm behaviour is that it is not possible to define unequivocally what is meant by the term ‘satisfactory’ and hence to construct a general theory of the firm. For example, a profit return that is considered to be ‘satisfactory’ by one firm may be considered too low by some other firm. Thus, the predictive powers of satisficing theory are strictly limited. See also PROFIT MAXIMIZATION, BEHAVIOURAL THEORY OF THE FIRM, MANAGERIAL THEORIES OF THE FIRM, ORGANIZATIONAL THEORY, PRINCIPAL-AGENT THEORY, FIRM OBJECTIVES.